The company posted improved revenues, gross margin, and net margin in the second quarter 2010. The company built upon the promise shown in the first quarter 2010. Yingli Green Energy managed to sell more solar module shipments, improve capacity efficiency and increase overall capacity which it expects to reach 1 gigawatt by the end of 2010. The company needs to maintain improved sales volume as revenues might be impacted in the second half due to the expected decline of average sales price of solar modules in the second half of 2010. The company currently trades at 10.4 times 2011 earnings estimates.
Following an improvement in the second quarter 2010, many of the company’s rankings are near the top of its peer group, including operating cash flow-to-net income (1st), cash conversion cycle (5th), gross margin (6th), research and development (9th) and SG&A expenses (9th). Significant capital expenditures and an acquisition force free cash flow-to-net income to number 17 among the peer group. The lack of clear disclosure of the amount of receivables sold leaves us unable to quantify the enhancement of the cash flow-to-net income ranking and the cash conversion cycle. The company relies heavily on debt to finance its operations and expansion, which contributes to the company’s number 22 ranking in debt-to-equity and number 27 ranking in cash-to-debt. This is a minor improvement compared to the 28 ranking in debt-to-equity and number 29 ranking in cash-to-debt for the first quarter 2010.
The company provides limited information in quarterly filings. It does not provide full footnote disclosures or a statement of cash flows. Furthermore, the company does not provide total megawatts sold or produced in its quarterly filings and many of the key performance indicators are only found in annual filings. Warranty and allowance for doubtful accounts data can only be found in annual filings. Governance is below average because three of the company’s seven directors are not independent. One director serves as the chief financial officer while another director serves as the vice president of the company. Furthermore, the financial controller serves as the internal audit manager and assistant to the chief financial officer.
The company is in the middle of the pack on a cost-per-watt basis relative to its peer group. For the past two fiscal years, the company has been just slightly above the industry average. Costs and sales are disclosed for each of the company’s segments, including: solar modules and solar systems.
Quarterly megawatt shipments are never explicitly stated, but the company claims second quarter 2010 shipments increased from the first quarter 2010 by “high-single digit percentage.” The company states its production capacity was 130% in the first quarter 2010, based on 600 megawatts of capacity. This translates into production of 195 megawatts in the first quarter 2010. In the second quarter 2010 conference call the company confirmed an analyst’s assertion of annual capacity of 840 megawatts in fiscal 2010 without any additional expansion. The figure 210 equates to a quarters worth of production and a single digit growth in the second quarter 2010 compared to the first quarter 2010.
On the downside, average selling price decreased in the second quarter 2010 because of the ongoing depreciation of the euro against the renminbi. Going forward, the company says the average selling price might go down or not keep pace with the industry, especially in the third quarter 2010. Analysts expect pricing to remain flat or slightly up for the rest of year, Yingli has locked its pricing into annual contracts.
The company announced in its second quarter conference call that its polysilicon manufacturing facility, Fine Silicon, has commenced commercial operations in August 2010. The company expects to produce 3,000 metric tons of polysilicon annually to be used in its photovoltaic modules. The company stated in expects to produce 400MT for the rest of year and 2000MT in 2011. Initially the costs of the polysilicon during production ramp up could be $60 to $65 per kilo. This number could drop to the $40 level once the company reaches full capacity. After three quarters of full capacity operation, the company expects the cost to be $25 per kilo.
Overall gross margin was at its highest point in the last eight quarters, reaching 33.5% in the second quarter 2010 just besting the high of 33.3% in the first quarter 2010. Gross profit margin was 23.6% in 2009, compared to 23.4% in 2008. The company said, “Moving forward towards the second half of 2010, after taking to consideration the impacts from the ramp up cost of 400 megawatts new production lines and the 3000 metric tons of Fine Silicon, we expect our gross margin in the second half of 2010 will decrease temporarily from the first quarter and the second quarter level.” The continuous increase in gross margin for recent periods was primarily due to the continuous decline in the blended cost of polysilicon, decreasing polysilicon usage per watt and continuous reduction in non-polysilicon cost. Cost reductions were largely offset by decreases in the average selling price for solar modules.
The company has had high debt-to-equity ratios relative to its peer group, exceeding the industry average for the past eight quarters. On July 9, 2010, the company announced it had received a ¥36 billion line of credit from the China Development Bank. In the second quarter conference call the CFO said, “And this ¥36 billion strategy framework line will be used for future projects on a case-by-case basis.”
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